Year: 2018

We need better foundations for financial stability policy

Michael Reddell Financial stabilty

Adrian Orr is now 7.5 months into his term as Governor and we still haven’t had an on-the-record speech from him about either main strand of his responsibilities: monetary policy or financial supervision and regulation.  Is he just not engaged on these issues?

But yesterday, his deputy Geoff Bascand delivered  –  in Australia –  a substantive speech on financial stability issues.  There were a few good elements in the speech.  For example, I was pleased to see this in the conclusion

The capital review gives us all an opportunity to think again about our risk tolerance – how safe we want our banking system to be; how we balance soundness and efficiency; what gains we can make, both in terms of financial stability and output; and how we allocate private and social costs.

It may be that the legislation underpinning our mandate can be enhanced, for example, by formal guidance from government or another governance body, on the level of risk of a financial crisis that society is willing to tolerate.

At present, the legislation is drafted so broadly and loosely that a single unelected and unaccountable official gets to make any such choices.  He (as it typically is) gets to make choices in a pretty much unconstrained way and we (including our elected political leaders) just have to live with the consequences.    Whether the sort of formal guidance Geoff refers to in that second paragraph is (meaningfully) feasible is open to question, but we need to improve on the current situation.  If such guidance isn’t feasible –  if society can’t write down its preference and give them as a mandate for the technocrats –  the big decisions around banking supervision policy frameworks (as distinct from the application of them to individual institutions) should be made by elected politicians (the Minister of Finance).

But, sadly, most of the speech just wasn’t that good.  It had plenty of politicially popular lines, and there was even the obligatory reference to the Reserve Bank as a tree god.  On climate change we had this

Climate change presents significant financial stability risks both through the direct implications of physical events for insurers, farmers and households, the indirect effects on insurance availability and property values, and through the potential social and economic disruption it promises.

We are working on developing a climate change strategy, which will be informed by discussions with banks and insurers in due course. Our role as a regulator is to try to ensure that financial institutions are adequately managing these risks, even though the horizon for their realisation could be decades away.

Given that the best evidence for New Zealand is that projected increases in global temperature are probably neutral and at best slightly positive for New Zealand in economic terms, and that all sorts of relative price changes occur every year changing the economics of all manner of businesses banks might have lent on, all this should amount to nothing.  But we know the Governor is a zealot –  why, he bets billions of dollars of your money on particular views of the economics of climate change, while so obscuring the choice there is no effective accountability –  so no doubt there will be pages and pages of bureaucratic bumpf from an agency with no expertise in the issue (or mandate), simply adding to compliance costs (especially for small institutions).

There was a rather lame attempt to defend the Bank’s involvement in the bank conduct review.  I noticed that the Governor had a bit of spat with ACT MP David Seymour at FEC last week on just this issue, which ended with the Governor (to whom any concept of deference or politeness seems unknown) responding as follows

When Seymour persisted, Orr simply said: “I am right, you are wrong”.

My own take is that they are probably both right.  Seymour is right on the fundamental point –  the bank conduct review was about politics and perhaps about Orr advancing his standing, not about financial soundness and efficiency (the Bank’s statutory mandate).  And if Orr is correct –  about the law giving him scope to do this –  it is only because the legislation was written –  guided by Bank officials – far too broadly in the first place.

But what bothers me rather more is the Bank’s weak understanding of the nature of financial crises, systemic risks, and so on.  These are concerns I’ve raised over several years in various contexts, including the cases the Bank has made for LVR restrictions and the (longed-for) debt to income restrictions.

For example, they continue to claim that

Household sector indebtedness represents the New Zealand financial system’s single largest vulnerability.

Yes, household debt is the largest component of financial system assets, but that is a quite different proposition.  As their stress tests have repeatedly shown, banks’ housing portfolios are constructed in a sufficiently cautious way that even very large adverse shocks (rising unemployment and falling house prices) wouldn’t threaten the soundness of the banks.   They run this cross-country chart of credit to households as a share of GDP.

novspeech-figure2

Yes, there is a lot more household credit than there was. That is the inevitable consequence of things like land-use restrictions than make urban land artificially scarce (and highly-priced).  And in New Zealand’s case, household debt to GDP is still a touch lower than it was going into the last recession (and at that time the servicing burden was also much heavier).  Despite all the angst, bank housing portfolios came through that severe recession unscathed –  as they did in Australia, Canada, and the UK.

But perhaps my biggest problem with the speech is a combination of three things:

  • the attempt to suggest that the system is very fragile –  at least without wise bureaucrats –  and that crises are always just around the corner, coming for us,
  • the continued failure to pay attention to the experiences of countries that had significant asset and credit booms and didn’t have a domestic financial crises, and
  • the inexcusable failure – in a central bank –  to distinguish between countries with floating exchange rates (which greatly assist adjustment in the face of shocks) and those without.

In combination, the Reserve Bank leads us towards quite misleading conclusions about the economic costs of financial crisis.  By overstating those costs –  hugely overstating –  they seek to strengthen their own position (and our respect of them) as regulators; the people who will do everything to keep us safe. (As commonly, one never sees mentioned in the speech that in all the financial crises they like to cite, there were in fact banking regulators who no doubt thought they were doing their job well.)

Of my first bullet, they say

First, why does financial stability matter? The answer is that bank crises are frequent and bank crises hurt.

Since the mid-1970s there have been over 140 banking crises around the world.

and (without any backing for this claim)

Serious incidents (that could have led to a crisis) are more common than people realise.

Yes, there have been lots of crisis, although since (depending on your definition) there are getting on for 200 countries in the world, even the number the Bank cites is less than one crisis per country over 45 years.

But there haven’t been many at all in stable, well-managed, floating exchange rate countries.  And in countries like ours –  for example, New Zealand, Australia, Canada, Norway –  the only financial crises in 100 years have related to the period just after liberalisation when everyone was just getting grips with what a market financial system meant (and when, for that matter, regulators also didn’t cover themselves with glory).    Of course, well-run banking systems can run into trouble, but since it is New Zealand that our Reserve Bank is supposedly focused on one might expect some grounding in the Australasian experience.   That experience just doesn’t suggest danger (massive credit losses) lurks continually.

The Reserve Bank has long been keen on citing the experience of Ireland as somehow relevant to New Zealand.  It pops up again in this speech

The consequences in terms of employment are also severe. After the GFC, Ireland’s unemployment rate rose from 4.6 percent in 2006 to 15 per cent in 2012

And yet –  prosperity and geography aside –  what is the biggest relevant difference between New Zealand and Ireland?   We get to set our own interest rates, and our exchange rate can adjust freely, while Irish monetary policy is set in Frankfurt for the entire euro-area, and they have no nominal exchange rate to adjust.  The Reserve Bank knows very well that floating exchange rate exist in large part because they provide greater leeway to cope with severe adverse economic or financial shocks.  Thus it was from the beginning –  at the time of the Great Depression –  and is now too.    I did post a few years ago –  which I can’t now see –  documenting that no floating exchange rate advanced country has ever experienced an increase in its unemployment rate of the magnitude Ireland put itself through.  I could commend to the Reserve Bank the experience of Iceland (which went through a financial crisis which, in many respects, was even nastier than Ireland’s, and yet had only a fairly moderate increase in its unemployment rate).

And then there is the hoary old chestnut about just how expensive financial crises supposedly are.  Here is Bascand

Since the mid-1970s there have been over 140 banking crises around the world. And they have had large costs for the affected economies and societies.

On average a bank crisis costs a country 23% of its GDP, while public debt increases by around 12 percent.3 The amounts are higher for advanced economies.

That footnote records that the numbers are calculated as deviations of actual GDP from its (pre-crisis) trend.

They sound like scary numbers, and if true (in some meaningful sense) they might even be so  (although even if a crisis happens every 20 years, a loss of 23 per cent of one year’s GDP is roughly a loss of 1 per cent of the total GDP over that full period).  But they aren’t meaningful, on a number of accounts.

First, the calculations (implicitly) assume that any deviation from the pre-crisis trend is a result of the crisis itself –  and not, for example, the misallocation of real resources that might well have occurred even if the financial system had stayed sound.  At best, these numbers conflate the two effects.

Relatedly, the estimate ignore things that might have getting underway in the year or two prior to the crisis.  Thus, as I’ve shown before, productivity growth in the United States had already begun to slow very markedly a couple of years before the crisis hit.

fernald

A small amount of that might make its way into the pre-crisis trend measures, but most of it won’t.

And thirdly, the Bank –  and many of their peers among other keen regulators –  makes no attempt to compare the experiences of countries that went through serious financial crisis and those that did not.   US economic performance over the last decade has been underwhelming to say the least.  The US was at the epicentre of the 2008/09 financial crises.  But it is simply a step far too far to conclude that the extent to which the US has done less well than in the previous decade is the measure of the cost of the financial crisis, especially if other countries that didn’t have a crisis also did less well than they had done the previous decade or so.

I’ve touched on this issue before, including in this post last year.   Of course, finding good comparators isn’t just a matter of a random into the OECD bag of countries.  For a start, as I’ve already noted (and as the Reserve Bank knows), a fixed exchange rate tends to exacerbate the severity of any shock.  The United States –  epicentre of the financial crisis –  is a floating exchange rate country.   Some floating exchange rate countries –  notably the UK and Switzerland –  were caught up in the 2008/09 crisis primarily because of the exposure of their internationalised banking sector to the US and its housing debt instrument (rather than because of domestic credit exposures).  But there are six well-established floating exchange rate advanced countries that didn’t have a serious domestic financial crisis at all in 2008/09:  New Zealand, Australia, Canada, Norway, Israel, and Japan.

Here is how the US experience, on real GDP per capita, compares with the median of those non-crisis floating exchange rate advanced economies

crisis costs

The US experience was a little worse than that of the median of this group of countries, but the differences are small, and there is a lot of variability in the experience of the non-crisis countries (since 2007 Israel has done much better than the US, while Norway has done much worse).   And as I noted in the earlier post, the comparison still tends to exaggerate any contribution of financial crises themselves, as the US had less fiscal leeway than all the other floaters except Japan, and the US had less monetary policy leeway (running into the lower bound) than New Zealand, Australia, and Norway.

That’s GDP per capita.  But what productivity?  Quite a lot of the arguments about the cost of financial crises attempt to build a story about persistent dampening effects on innovation, risk-taking etc, reflected in the productivity numbers.  Here is the chart, showing the same comparison countries, for real GDP per hour worked (OECD data).

crisis costs 2

Perhaps this chart is a bit more favourable to the story, depending on how you read it. Over the whole period –  pre and post crisis –  the US managed faster labour productivity than the median of the six non-crisis countries.  But perhaps the slowdown in productivity growth is a bit more in the US than the others (even if, as the earlier chart showed more clearly) the slowdown pre-dated the crisis?  Then again, the level of labour productivity in the US is higher than in all but one (Norway) of my non-crisis collection of countries, so if there was a global productivity growth slowdown (for whatever reason) you might be expect the US to be hit more visibly than the other countries (that sitll had catch-up and convergence opportunities).   Even among the non-crisis countries, there is considerably divergence –  since 2007 Australia has had the strongest productivity growth and Norway the weakest.  (Remarkably, Iceland –  savage financial crisis and all –  has had faster labour productivity growth than all these countries.)

I’m not wanting to suggest that recessions and financial crises don’t have costs.  At an individual level almost inevitably they do, and at a national level recessions are rarely pleasant or welcome (that’s why we have active monetary policy).  But we deserve much more searching analysis from our central banks and financial regulators (and those holding them to account, including national Treasurys) when they bidding to persuade us to entrust them with so much power, and  the deference due to people who make so much difference (so they claim).

A good starting point remains this very long-term chart (due originally to Nobel laureate Robert Lucas)

maddisonUS

As I noted in a long-ago post

It is a quite simple chart of real per capita GDP for the United States, back as far as 1870.  These are Angus Maddison’s estimates, the most widely used set of (estimated) historical data, and as Maddison died a few years ago they only come as far forward as 2008.  The simple observation is that a linear trend drawn through this series captures almost all of what is going on.  More than perhaps any other country for which there are reasonable estimates, the United States has managed pretty steady long-term average growth rates over almost 140 years.  And yet, this was a country that experienced numerous financial crises in the first half the period.  Lists differ a little, but a reasonable list for the US would show crises in 1873, 1884, 1893, 1896, 1901, 1907, perhaps 1914, and 1929-33.  There were far more crises than any other advanced countries experienced.

And yet, there is no sign that they permanently impaired growth, or income.

If we are to have good financial stability policy, and confidence in it, it needs to be based on good searching robust and honest analysis, that recognises the puzzles and the ambiguities in the data, not the sort that rushes to support the conclusions policymakers have already settled on.

Reserve Bank whimsy

Michael Reddell Reserve Bank, Transparency, Uncategorized

I was meeting someone in town this morning. I was a bit early and the person I was meeting was a bit late so I found myself standing for some 20 minutes across the road from the Reserve Bank.   As I did, I became a bit curious about these four guys.

orr1

In the entire time I watched them, this is all the activity there was (the chap with his hand on the cone).

Most of the Bank’s building is apparently still closed as a result of the asbestos scare, although the ground floor museum has now reopened.  But it isn’t at all clear what these guys were doing.  Access to the turning circle is now controlled (remotely) by those metal bollards, and although there will probably be billions of dollars of notes in the vaults, electronic security systems –  and big thick steel doors and walls – will be guarding that.  They weren’t acting as a guide to members of the public –  various people walked up the main steps into the museum while I watched and none interacted with the security men.  They seemed to be just standing there.  And when I walked past again 45 minutes later, they were still there….just standing.  Is the Bank a bit overfunded, or is it just the average productivity in New Zealand is so low that labour intensive operations (accomplishing what?) are still affordable?

I’ve commented here on the new Governor’s enthusiasm for all manner of green causes.  But he seems to be doing his bit personally, or maybe just saving a few dollars for the staff cafeteria.  Someone pointed out to me that the Bank now has a dinky little vegetable garden right on the corner of Bowen St and The Terrace.  I guess the space is too small for a tree?

orr2

On a slightly more serious note, readers will recall that a few weeks ago the Governor was billed as giving a speech on transparency, to the annual meeting of the (largely) taxpayer-funded lobby group Transparency International, to be introduced by the State Services Commissioner (who has responsibilities for open government)……..and yet the speech was to be totally non-transparent (no text published).    Potential attendees were told that the Governor was to be thanked by the head of the Department of Prime Minister and Cabinet, Andrew Kibblewhite, who is shortly to take up the job of Secretary for Justice, with responsibilities for the Official Information Act.

As it happens, the newsletter of Transparency International dropped into my inbox the other day.  It featured a report of the Orr address.

Guest Speaker: Adrian Orr

Guest speaker, Governor of the Reserve Bank of New Zealand (RBNZ), Adrian Orr, was introduced by Adrienne Meikle, CEO of the Commerce Commission. Noting that people referred to her as “the other Adrienne” she augmented her introduction with comments about the key priorities of the Commission.

The RBNZ Governor provided a most insightful, off-the-record address with ideas to stimulate thinking about the relevance of transparency, accountability and integrity for more-effective governance.

The vote of thanks was delivered by Lyn McMorran, Executive Director of the Financial Services Federation, who has contributed an account of Adrian’s presentation below.

Perhaps Peter Hughes and Andrew Kibblewhite were just too busy in the end, or did they get cold feet about being associated with such a travesty –  the secret speech on transparency by a public official, to a (publically funded) transparency and governance lobby group?

Senior officials, in roles that are closely followed by markets etc, really shouldn’t be doing “most insightful” off-the record addresses.  If the speaker can’t be bothered writing a full text he or she can do as the Reserve Bank of Australia does and make an audio or video record available.

As it happens, Ms McMorran has given us a summary of this “off-the-record” address.  Here is an extract (emphasis in the original)

He said, however, that often constructs within society work against us doing the right thing. In terms of transparency he said that what gets measured gets managed. Too often what is measured are things that are short term and that managers are often being incentivised for the start line not the finish line.

It is, therefore, crucial to get the horizon right – determine what outcomes we want over time – horizons that matter.

Another excellent point Governor Orr made was about the principal/agent phenomenon where a manager owns the capital but is highly divorced from the managers and the managers of managers to whom they outsource this capital and it is hard for the person at the top to know how ethical all the layers are within their organisation.

Same old themes –  especially the bit about time horizons, where the Governor seems still to be convinced that he knows better than citizens and markets what timeframes are relevant for what sorts of institutions/issues.

Under the Official Information Act I also asked the Bank for the speech or –  if no full record existed –  a summary of what was said (memories are official information too).  For completeness, here is the summary I received.

Governor Orr did not use any notes for his speech but drew upon:

An outline of the speech from Governor Orr’s recollection, is as follows:

  1. Thanks for the invite.
  2. Congratulations on your work to raise transparency as a means of ensuring integrity in peoples/firms/governments behaviour.
  3. Property rights sit at the basis of a sound functioning economy.
  4. Macro stability is also very useful (monetary and fiscal policy).
  5. Microeconomic incentives to invest productively are also necessary (human and physical capital investment).
  6. 3-5 (above) are endogenous inputs to economic growth (see Conway and Orr, RBNZ Bulletin 2000).
  7. Transparency assists 3-5 occur – as it reduces the likelihood of some forms of ‘market failure’ – myopia, asymmetric information, time inconsistency in policy, and principal-agent issues.
  8. Even if people don’t aim to create bad outcomes, market failure can lead to sub-optimal outcomes.  Likewise, market intervention can suffer the same issues.  Hence, commitment and transparency can reduce these risks.
  9. Applause and thanks.

There were no questions as there wasn’t time.

I remain less interested in the specific substance of the speech than in the principle of openness.  Private fee-paying audiences shouldn’t have better access to the Governor’s views or insights than the wider market or public audience.

 

The Prime Minister: kindness, policy, and specific abuse

Michael Reddell NZ politics

In the Canvas magazine supplement to Saturday’s Herald there was a brief interview with the Prime Minister that encapsulated well for me why she might be well-suited to being, say, Governor-General or some other empathetic public role, but also why she is unsuited to be Prime Minister.   The interview was reproduced from a new edition of a book called 200 Women. 

Asked what really matters to her, the Prime Minister responds “empathy and kindness”, and going on to note “because that’s what drives social change”.   I don’t want to downplay the value of either admirable quality, in an individual.  But they are manifestly insufficient in someone who puts themselves forward as a leader – of a local community, let alone of a nation.

The Prime Minister attempts to illustrate her point

“if you break some of the social challenges we face down to individual people, New Zealanders have a huge amount of empathy at that level. I’ve always viewed the world this way –  rather than seeing political problems as these large-scale statistical issues and as differences between peoples”.

We don’t want political leaders who can’t identify with individual need, opportunity and so on.  And yet, when one is dealing with five million people –  and government policy choices affecting many or all of them  –  you need to be able to stand back and think about things differently, to analyse issues systematically, to recognise (for good and ill) the force or incentives, to think about the longer-term as well as the short term, and so on.   And even to recognise that values and interests can, and often will, be in conflict –  in many areas hers aren’t Family First’s or the oil and gas industry’s  (or mine for that matter).  Politics is partly about navigating those differences, seeking reconciliation where possible, but also about making hard choices and trade-offs.

She goes on, apparently pretending none of this is real.

There are so many issues we end up divided on, which, if you distilled them down to a simple concept, you will find we are in fact united on.   Take the issue of child poverty; sometimes you’ll hear arguments like, “Well, this is an issue of parental responsibility, is it our role to be involved?”.  There’s a perception that, at some point, someone has neglected their duty of care.  But, actually, at the heart of the discussion is a child who –  whatever perception you might have of them –  is blameless, who is just a subject of their circumstances,

So while I might argue back that you can’t talk about parental blame as long as we have a low-wage economy in which people are working yet not earning enough to survive –  at its heart we’re talking about the same child.  If you take a view of kindness towards that child, then this starts to change the way you might think about solving the problem. You strip away some of the blame and get back to the simple values that every child should have a good start in life and that every child should have what they need to thrive.

But this is just vapid stuff, which doesn’t help make any serious or hard policy choices at all.  It suggests a near-total absence of any sort of analytical framework for thinking about the economy or society, about the limits of the state (or the family), as well as some sort of bizarre ahistorical perspective on things –  at the time when real incomes are higher than they have ever been in New Zealand’s history (and global real incomes are higher than in all of human history) apparently no parent can be expected to take responsibility for anything because people don’t earn enough to “survive”.   What an insult to our ancestors.

She goes on.  Asked about what she would change if she could she responds

If I could distill it down, there are things among this enormous programme of work that I’d like to walk away from politics feeling we had changed.  These are finally having agreement that child poverty is something which shouldn’t exist in a country like ours and that we all benefit if we rid ourselves of it.  And climate change.

Not even actually eliminating child poverty –  whatever that means (in absolute terms we are long past that point, in relative terms almost by construction we can’t get there) –  just getting head-nodding agreement that “child poverty shouldn’t exist”.  Nor, in some ideal world, would many many other bad outcomes –  sickness, disease and so on.  And note that last phrase, which just hangs.  Nothing of substance follows it, nothing about the hard choices, conflicting values, economic costs and benefits.   This isn’t leadership, it is feelgood-ism.  It brings to mind the Disney lyrics

When you wish upon a star
Makes no difference who you are
Anything your heart desires will come to you
If your heart is in your dream
No request is too extreme
When you wish upon a star
As dreamers do
Fate is kind
She brings to those who love
The sweet fulfillment of their secret longing

But it isn’t the way government, and policymaking, works…..or should work if the desirable change has any prospect of being achieved.  That involves hard and disciplined work, tough choices, looking beyond the superficial, and so on.   It involves leadership in more dimensions – probably more important dimensions – than just “kindness”,   including courage, responsibility, persuasion and so on.

So just to take the child poverty issue for a moment, whatever you might want to do about income redistribution right now, it might mean recognising that much bigger medium-term differences can be made –  and opportunities created –  by doing something serious about New Zealand’s lamentable productivity record (by contrast, reports of the Prime Minister’s first meeting with her Business Advisory Council suggests neither she nor they have any concept of what the issues might be, or even how to think about them).

And whatever might be done about immediate social housing issues (“for the kids”), much bigger and enduring differences –  for this generation and the next – can be made by fixing the land use restrictions that have given us some of the worst house price to income ratios in the world.  You might even think –  as I do –  that children are almost always better off growing up with two biological parents who are committed to each other for life, and think about whether well-intentioned (“kind”) policy choices in decades past might have contributed to some of the problems we see today.

In a sense that “well-intentioned” comment applies in all these areas, and many more.  Many policy choices made by successive governments were made by people who thought they were being “kind” (eg working in the best interests of others) –  no doubt there were a few that were just self-interested by design from the start, but they will be few –  but as a decisionmaking criterion it just doesn’t get you very far.   Bad (policy) choices can be just as readily made by “kind” people.  The Prime Minister may well be a “kind” person –  I’ve never heard anyone say a bad word about her personally, which is admirable –  but it won’t help much to be the sort of effective leader New Zealand needs.

But if “kindness” is the criterion the Prime Minister wants to inject into all decisionmaking  – I’m still puzzling over how it is going to help her deal, say, with Chinese expansionism and interference in New Zealand (though perhaps it could help spark the odd genuine and open expression of concern about human rights abuses) –  there was an odd juxtaposition in Saturday’s Herald that left me wondering about just how seriously I should take even her talk of the priority of “kindness”.

The interview I’ve quoted from above was no doubt given some time ago, and presumably the Prime Minister didn’t control when it appeared in the Herald. But in that issue of the Herald was a truly awful, in-depth, story about a young man whose life may well have been destroyed by the organs of the state, for which if anyone is responsible (and accountable) it is the Prime Minister of the day.   It was this detailed account by Jared Savage, introduced this way.

EXCLUSIVE: A teenage boy wrongly accused of rape went to prison protesting his innocence. A year later, the so-called victim recanted the allegations. But the confession didn’t come to light for another 10 years. Jared Savage investigates.

But that intro barely even begins to capture the full horror of what seems to have gone on.

His constant claims of innocence counted against his rehabilitation and undermined his chances of parole. So he served every day of his 4 ½ year sentence.

But his prison time was far from over. He spent most of the next seven years bouncing in and out of prison for tripping up on the strict release conditions accompanying his status as a sex offender.

Simply saying hello to a child was enough for him to be locked up again.

“Release conditions” for something he didn’t do in the first place.    And which it was known years ago that he didn’t do.  And yet it was little more than good fortune that his conviction was finally overturned by the Court of Appeal.

I found it an incredibly harrowing read.  No doubt the young man concerned is no angel –  few of those to whom miscarriages of justice occur are –  and, as a victim of earlier abuse himself, his ability to function fully effectively in society might have been pretty compromised anyway.  But that isn’t the point.  When the state acts to take away someone’s liberty, when it imposes restrictions even beyond the end of a sentence, when it tars someone with the label “sex offender”, it needs to make utterly sure that it gets things right.  And since that level of confidence is impossible this side of eternity, when mistakes are made –  sometimes, as in this case, utterly egregious mistakes –  the agents of the state (the government) needs to be at the forefront of a generous pro-active approach to making atonement.  Nothing can restore than 10 years that young man has lost, perhaps there is slim chance now that his life can successfully be put on a high-functioning path, but that only reinforces how fundamental it should be for those in charge – our Prime Minister for example –  to take the lead in the apology, atonement, compensation and reconciliation processes.  Government agencies failed this man, but they failed us too.  These aren’t our values as New Zealanders –  locking up a young man for 10 year for a crime he didn’t commit, holding against him his refusal to give up and confess to a crime he simply didn’t commit, and so on.

At the end of the article we read

Phil Hamlin [the lawyer who took up the case] is now looking into whether Patrick is eligible for compensation for wrongful conviction, and, ironically, a separate claim against the state for abuse in CYF care.

Because of his youth and the relatively minor nature of the indecent assault Patrick admitted to, Hamlin said his client would not have gone to prison.

So most of his youth was spent in prison because of Mark’s now discredited rape allegations.

“I think it’s extraordinary it’s taken so long to be sorted out,” said Hamlin.

“The consequences have been huge. It’s wrecked his life.”

As for Patrick, he doesn’t really care about any compensation money.

“All I just want is for people to believe me. Then I can move on.”

Which is fine in its way, but where is the pro-activity of the state, the leadership of the Prime Minister and the Minister of Justice?  Someone who has been put through a dreadful ordeal of the sort this young man experienced shouldn’t have to go on bended knee now to the Crown.  If anything, senior government ministers should be going on bended knee to him (and his representatives), asking what they can do to make atonement for the specific and longrunning abuses of this young man by the New Zealand government and its agents.

And yet what have we heard from the Prime Minister or the Minister of Justice?  Nothing.

(For that matter, what have we heard from the opposition party leaders –  National’s leader and deputy having previously been Associate Minister of Justice and Minister of Courts, and Minister of Social Development and Minister of Police.  Nothing.)

Does no one say anything because the victim of this injustice is not some safe, blameless individual (as conventional politics would describe it)?  I don’t know, but the silence –  several days on now (and I’m not sure when that Court of Appeal ruling came down) –  is shameful.

This is one of those very specific episodes where “kindness” –  above and beyond the minimalist provisions of the law –  might begin to make a real difference in one person’s life, and in demonstrating to citizens (and public servants and government agencies) the sorts of egregious abuses we simply won’t stand for, no matter who they committed on.  Story always beats no-story.  Here she can really make a difference, and be seen to walk the talk.

I was interested to see Herald journalist Matt Nippert tweet about this story

I really hope he is right.

Show your workings: KiwiBuild, the Reserve Bank, and the Ombudsman

Michael Reddell OIA, Reserve Bank

The Reserve Bank is a powerful public agency, whose views receive a lot of coverage, and some respect in some quarters. The views taken by the Bank affect where interest rates are set, and thus the short-medium term path of the economy itself.  They aren’t just commentators –  they are players too –  but they aren’t less than commentators.  They use a lot of public money to undertake analysis that is supposed to underpin their commentary and decisions.   It should be pretty much Open Government 101 that citizens –  who pay for the analysis and are directly affected by how the Bank uses it –  should be able to see that analysis.     The Reserve Bank has never seen it that way.  Over decades –  when I was closely involved, and still now –  they’ve taken the view that the Bank is different, and special, and that all we should be entitled to see is what they choose to tell us.   Even Xi Jinping reaches that low bar.

Sadly, the Bank has had the Ombudsman –  supposedly the watchdog for citizens to ensure, specifically, that the Official Information Act is complied with (in letter, but ideally also in spirit) –  wrapped around its little finger for decades now.  Through successive Chief Ombudsmen and successive Governors, the Ombudsman’s office has provided cover for one of the most powerful agencies of government, one still (for a few more months) run as one man’s fiefdom (single decisionmaker regime).

KiwiBuild is a case in point.  As I noted, the Reserve Bank is a powerful public agency.  KiwiBuild is a major element in the current government’s policy, and one very relevant to the Reserve Bank given the role fluctuations in residential investment often play in business cycles.   What the Reserve Bank thinks about the impact of KiwiBuild matters for monetary policy.  It can matter also to the government, especially now that its flagship programme appears to have run into political difficulties.

The Reserve Bank first opined on KiwiBuild in its November Monetary Policy Statement last year.  That document was finalised shortly after the new government took office, and in it the Bank reported –  in highly summary form –  the assumptions it had made about four strands of the new government’s programme minimum wages, fiscal policy, immigration, and Kiwibuild).   Here is what they had to say about KiwiBuild (emphasis added).

The Government has announced an intention to build 100,000 houses in the next decade. Our working assumption is that the programme gradually scales up over time to a pace of 10,000 houses per year by the end of the projection horizon. Given existing pressure on resources in the construction sector, the aggregate boost to construction activity from this policy will depend on how resources are allocated across public and private sector activities. The Government intends to introduce a ‘KiwiBuild visa’ to support the supply of labour to high-need constructionrelated trades. While accompanying policy initiatives may alleviate capacity constraints to some extent, our working assumption is that around half of the proposed increase will be offset by a reduction in private sector activity.

It wasn’t necessarily an unreasonable working assumption, but it was very early days for the new government.  Presumably the Bank had had the benefit of perspectives from, say, MBIE and Treasury that the public were not privy to, and they must have applied their own (considerable) analytical resources to thinking hard about how, at any economywide level, crowding out would work.  It didn’t seem unreasonable that if the central bank was going to weigh in like this, and make policy on the basis of such assumptions, we should be able to see a little more of their supporting analysis.  After all, if the correct number wasn’t a 50 per cent crowding out, but (say) 25 per cent, 75 per cent or even 100 per cent, it could have material implications for monetary policy.

And so, a few days after the Monetary Policy Statement was released, I lodged a request for

copies of any analysis or other background papers prepared by Bank staff that were used in the formulation of the assumptions about the impact of four specific policies of the new government minimum wages, fiscal policy, immigration, and Kiwibuild), as published in the November 2017 Monetary Policy Statement.

Somewhat predictably, the Bank refused and I appealed the matter to the Ombudsman.

The Bank justified its refusal on two conventional grounds, and one on which the Ombudsman has never provided substantive guidance.

The Reserve Bank is withholding the information for the following reasons, and under the following provisions, of the Official Information Act (the OIA):

  • section 9(2)(d) – to avoid prejudice to the substantial economic interests of New Zealand;
  • section 9(2)(g)(i) – to maintain the effective conduct of public affairs through the free and frank expression of opinions by or between officers and employees of the Reserve Bank in the course of their duty; and
  • section 9(2)(f)(iv) –  to maintain the constitutional convention for the time being which protects the confidentiality of advice provided by officials.

Anyone with a modicum of interest in open government, and even the slightest familiarity with the Reserve Bank, financial markets etc, would recognise that the claim that releasing such background supporting analysis would prejudice the “substantial economic interests of New Zealand” is laughable.

The Reserve Bank continues to comment on KiwiBuild, and the implications of that programme for the overall outlook for residential investment and for economic activity.   The views taken by the Bank still matter, both substantively (monetary policy) and in terms of the growing political controversy over the programme.     And they continue to provide almost no substantive analytical underpinnings for their views.  Here is the relevant extract from last week’s MPS. 

The Government’s KiwiBuild programme is expected to contribute to residential investment over the second half of the projection.

and

The KiwiBuild programme is assumed to add to the rate of house building from the second half of 2019.

And that’s it. No description of any analysis they (presumably) must have undertaken.

The issue came out in the press conference, where it was even enough to win the government a favourable news story, Reserve Bank backs KiwiBuild targets… mostly.  Here is some of that story

But the Reserve Bank’s quarterly Monetary Policy Statement noted that the “KiwiBuild programme is assumed to add to the rate of house building from the second half of 2019”.

That’s big news. The Bank puts extensive resourcing into coming up with its economic forecasts, and it’s essential that it does so. The Bank’s forecasts guide it’s setting of the official cash rate which is one of the main levers that sets the pace of the economy. Get it wrong, and the consequences can be severe.

That’s why it’s worth noting that the RBNZ now appears to back the view that most of the KiwiBuild homes built will be in addition to the current housing supply, which is roughly 30,000 houses delivered on the private market.

Critics have assumed that all or most of the 12,000 houses KiwiBuild will deliver each year, once fully deployed, will come by sucking resources from the 30,000 builds currently taking place. New Zealand will still build 30,000 houses a year, but 12,000 of them will be KiwiBuild, they say.

But the Bank disagrees, saying its forecasts have “assumed some minor set off”, but that KiwiBuild is overall likely to increase housing supply.

This is a change from the Bank’s MPS from last November. At the time, RNZ reported the Bank’s preliminary calculation was that as many as half of KiwiBuild’s projected 100,000 homes would have been built anyway.

Housing Minister Phil Twyford responded then that “there may be some offset but I doubt it will amount to very much”.

It now seems the Reserve Bank largely agrees, although as an independent entity it is duty bound to stay out of politics.

It doesn’t totally back the Government’s aspiration to deliver all the KiwiBuild homes in addition to existing supply.

Reserve Bank Chief Economist John McDermott said there would still likely be some “crowding out” as KiwiBuild sapped workers and resources from the private sector.

“You can imagine when one part of the economy starts to increase demand it will crowd out some other parts but overall we will start to see quite a lot of activity over the next few years in residential construction,” he said.

This stuff matters, Orr and McDermott are opining on it, Orr is making monetary policy on it, but they can’t or won’t supply any supporting analysis.  Not a year ago, and not now.     Perhaps they are right, but what confidence should we have in their views when they won’t show us, so to speak, their workings.  Old exam question used to specify that if you wanted credit for your answer (to, say, some maths problem) you needed to show your workings.  It isn’t obvious why the bar should be so much lower for a powerful public agency like the Reserve Bank.

Sadly, they have persuaded the Ombudsman to agree with them.  In my post on Thursday, I included some text from a submission I had made a few months ago to the Ombudsman on his provisional determination on this issue.  On Friday I received a letter from Peter Boshier, the chief ombudsman, conveying his final decision.  In it, he fully backed the Reserve Bank’s stance of refusing to release any of the background papers.

In my submission I had attempted to draw a parallel between background papers provided to the Governor on matters relating to MPSs and OCR decisions, and material provided to the Minister of Finance in respect of, notably, the Budget.  Each year a huge amount of that latter material is pro-actively released.  I noted

Thus, Cabinet papers underpinning key government announcements are frequently released, sometimes in response to OIA requests and at other times pro-actively.  But so too is advice to a Cabinet minister from his or her department.  That is so even when, as is often the case, officials have a different view on some or all of the matters for decision from the stance taken by the minister.   A classic example, of course, is the pro-active release of a great deal of background material, memos, aide-memoires etc compiled and submitted as part of the Budget formulation process.  Many of the working papers in that case may never even have been seen the Secretary to the Treasury but will have been signed out to the office or minister at the level of perhaps a relatively junior manager.  Many will have been done in a rush, and be at least as provisional as analysis the Governor receives in preparing for his OCR decision.  I’ve been personally involved in both processes.

Is it sometimes awkward for the Minister of Finance that his own officials disagreed with some choice the minister made?  No doubt.  Do ministers sometimes feel called upon to justify their decisions, relative to that official alternative advice? No doubt.  But it doesn’t stop either the provision of such dissenting (often quite provisional) analysis and advice, or the release of those background documents.

The sorts of arguments the Reserve Bank makes, and which Mr Boshier appears to have accepted, could well be advanced by Cabinet ministers (eg clear messaging about this or that aspect of budgetary or tax policy –  all of which are substantial economic interests of the NZ government).  If they have advanced such arguments, they have generally not succeeded.  And nor should they.  Doing so would undermine effective accountability or scrutiny, even though the Minister’s formal accountability might be to Parliament (he has to get his Budget passed).

The relationship between the Minister and his or her department officials is closely parallel to that between the Governor of the Reserve Bank –  the sole legal decisionmaker (who doesn’t even have to get parliamentary approval of his decisions) –  and the staff of (in this case) the Economics and Financial Markets departments of the Bank.  One group are advisers, and the other individual is the decisionmaker.  The fact that they happen to both part of the same organisation, doesn’t affect the substantive nature of that relationship.   Managers and senior managers in the relevant departments are responsible for the quality of the advice given to the Governor, in much the same way that the Secretary is responsible for Treasury’s advice to minister (and at his discretion can allow lower level staff to provide analysis/advice directly to the Minister or his office)   I would urge you to substantively reflect on the parallel before reaching your final decision, including reflecting on how (if at all) official advice on input to the OCR is different than official advice (including supporting analysis) on any other aspect of economic policy.

Remarkably, in his determination to protect the Reserve Bank,  Boshier simply ignores the parallel to Treasury budget advice altogether.  Perhaps it isn’t altogether the appropriate parallel (although I think the situations are extremely analagous), but instead of engaging and identifying relevant similarities and differences, the Chief Ombudsman simply ignores the argumentation.  He seems to think it is okay for powerful public agencies to make policy based on critical assumptions, and opine on matters of political sensitivity, and yet to be under no obligation to show any of their workings, even when (as in this case) such material clearly exists (the responses make that clear).

If that weren’t bad enough, the Ombudsman plumbs new depths with this paragraph from his letter

You contend that the formal accountability of the Governor is relatively weak and that public scrutiny and challenge is the most effective form of accountability. However, that view would seem conflict with your previous stated view that it was the Reserve Bank Board, rather than market commentators, who was best placed to hold the Governor to account.2 Your paper makes a very strong case for the merits of the formal accountability mechanism, the disadvantages of market commentators, and the legitimate variance of views that can arise.

I was initially a bit puzzled about what he was going on about, until I looked at footnote 2.  It was a link to this paper on monetary policy accountability and monitoring, which I had written for the Bank, as a Bank employee, in about 2005 or 2006, making a defensive descriptive case for the Bank, including highlighting how open and accountable it was.  The article has actually been amended slightly in recent years, but even at the time it wasn’t my own view –  it was the official Bank line.  That is what public servants are paid to write.  (Heck, I’ve given presentations making the case for OCR decisions I strongly disagreed with –  it is what public servants do.)     As I recall it, the article had been intended for publication in the Reserve Bank Bulletin, and my own bosses had been reasonably comfortable, but the Bank’s Board was most definitely not comfortable, and insisted both that it not appear in the Bulletin and that before it appeared anywhere it be amended to play up the importance of the Board’s monitoring and accountability (relative to the way things were presented in the draft).

I couldn’t believe that a serious person –  and Peter Boshier used to be a senior judge, and as Ombudsman is entrusted by Parliament with protecting citizen’s interests –  was actually going to run so feeble an argument.   Perhaps it seemed like a “gotcha” argument to some junior person in his office, but review processes are supposed to winnow out such lines. I’m still sitting here shaking my head in disbelief.  The Ombudsman seriously wants us to believe that because a Bank official, writing for the Bank –  a decade or more ago –  says it is highly accountable via the Board, it is in fact so.  Only someone determined to provide cover for the Bank could even think to take such a line seriously.  But that seems to be a description of the Ombudsman.

As tiny sliver of hope, the Ombudsman did point out that his decision had to be made as at the time I initially lodged the request,  ie was it reasonable for the Bank to have withheld the information last November/December, a few weeks after the relevant MPS. As a year has now passed, I have submitted a new request to the Bank, for exactly the same information from last November. I fully expect the Bank to decline that request, and then the Ombudsman can determine whether even after a year citizens should be entitled to see the working analysis powerful public agencies use when they opine on, for example, controversial government policies.  The Official Information Act is well overdue for an overhaul, but decisions like these simply reinforce the case, with more evidence of how ineffective the administration of the Act (including by the Ombudsman) often is in delivering on the purpose statement in the Act itself.

Meanwhile, Orr and McDermott opine on KiwiBuild and (apparently) make policy on their opinions, but refuse to provide anything of the analysis that underpins their views.  That simply isn’t good enough.

ADDENDUM

For anyone interested in another small example of how the Reserve Bank has the Ombudsman wrapped around their little finger,  consider the release last Thursday in the Monetary Policy Statement of this chart.

OCR advice

When I’d first seen it I offered a little bit of praise to the Governor for publishing it.  It happened to be quite similar to information I had requested more than 2.5 years ago, and which the Bank had refused to release.

As I noted in the post on Thursday, I learned a few minutes after publishing that praise of the Governor that, in fact, they had published the material only because –  after a mere 2.5 years –  the Ombudsman had got round to asking them to reconsider.   But it got worse when I got the formal letter from the Ombudsman on Friday.  They did actually apologise for taking 2.5 years and noted

As you may appreciate, this investigation has involved several meetings and much correspondence with the Reserve Bank concerning the use of a rarely-used withholding ground.

(From memory this is the “substantial economic interests” ground, which the Ombudsman thus again avoids formally ruling on.)

But this was the bit that really caught my eye

To preserve market neutrality, the Reserve Bank asked me not to inform you of its decision to release this information until after the November MPS.

This simply confirms that the Ombudsman and his staff have no concept of what might, or might not, be market sensitive.   Anyone with the slightest familiarity with the issue will recognise what actually happened.  The Bank decided to put the information in the MPS so that it might perhaps attract a little praise (for new interesting information) –  and it even managed to get some from me – while avoiding a situation where, having released the information to me –  me having requested it 2.5 years ago – I could have put it out first here, with some digs about the process, the obstruction, and the interests of transparency.

As it happens, I have no problem at all with the Bank putting the material in the MPS. It gave the material more visibility than it would get here –  and there was even a question at the press conference –  but no one, but no one (other than presumably the Ombudsman’s office, which appear not to know what it doesn’t know) would have bought the line about this old information being in any way market sensitive, or hence the alleged need for “market neutrality” about its release.  The Ombudsman’s office, again, allowed itself to be used by the Bank.  Relevant Bank staff will no doubt have been quite pleased with themselves.  But if anyone from the Ombudsman’s office is reading this –  and perhaps I’ll send them a copy –  they might use it as a prompt to begin to rethink the extreme deference they’ve displayed towards the Bank over the years.

 

 

Armistice Day

Michael Reddell Uncategorized

Sunday is Armistice Day –  Remembrance Day if you like – the 100th anniversary of the end of that four year conflict now known as World War One; the one some had hoped really would be the war to end all wars.  It isn’t a day for relitigating the politics, or even for analysing the economics, but for calling to mind and remembering those who died and the sacrifice they made.  In most cases, at least from this part of the world, they were volunteers.

I don’t have direct ancestors who died in World War One, or even siblings of my ancestors.  But when I reflect on the sacrifices of New Zealand servicemen, I think of my grandmother’s cousin, (temporary) Captain Robert K Nicol of whom I’ve learned a little  in the last few years.   As it happens (we generally not being a Wellington family), he attended the same primary school as my children, and the same Baptist church congregation that my family is part of today.     After all the analysis people like me are prone to, connections like that bring it all closer.

Here is the war memorial bell, still there, at Island Bay school

island-bay-school-war-memorial

Robert Nicol probably left school quite young and by the time the war broke out he was a painter –  nothing out of the ordinary, and from what accounts there are no particularly special skills.

He served in Gallipoli and then in France (by then a second lieutenant) where in late 1917 he was awarded the Military Cross.   The citation for that award read

For conspicuous gallantry and devotion to duty. When in charge of Stokes mortars in defence of a captured village one of his two gunds was destroyed, so he handed the other on to his Corporal and joined the company, which was in the village. Here he displayed magnificent gallantry and the utmost fearlessness in assisting the company commander, personally leading a bombing party against an enemy counter-attack, and accounting for six of the enemy himself in the desperate hand-to-hand fighting which ensued. His prompt action and fine leadership saved the situation.

The medal was awarded at Buckingham Palace by George V himself.

Nicol was then recruited to serve in a special British Army unit, which came to be known as Dunsterforce (commanded by a Major-General Dunsterville).  As a Herald article a few years ago recorded it.

Nicol, assigned the rank of temporary captain, had a solid reputation as a capable officer, handy with the Lewis gun and Stokes mortar and a skilled bomb instructor. It made him a perfect candidate, with 23 other New Zealanders, for special service with the British Army.

With volunteers from Australia, Canada and South Africa, the small band of brothers – the War Office had in mind a secret force of 100 officers and 200 NCOs – had a mission to block the Bolsheviks from the Caucasus.

It was a perilous and risky initiative – the NZ Rifle Brigade History notes the men were told when they assembled that few could hope to come through alive.

After Russia’s exit from the war, Dunsterforce’s role was

After crossing Europe as far as Italy, the soldiers boarded a ship for the Suez Canal and round to Basra before heading up the River Tigris to Baghdad in what was then Mesopotamia. The task set for Dunsterforce was ambitious: to blunt Turkish and German expansion reaching the rich Baku oil fields on the Caspian Sea.

The strategy involved the small Allied unit persuading Georgian, Armenian and Assyrian forces to hold the line against the rampant Turkish armies.

You can read a fair amount about the adventures of Dunsterforce, including the attack on Baku, in various on-line documents, including Appendix V of the official history of the New Zealand Rifle Brigade.    Another branch of Dunsterforce, including Captain Nicol, was in Iran (then Persia)

Hemmed in along the western shores of Lake Urumiah were some 80,000 survivors of the Nestorians, or Christian Assyrians, a thriving people that at the beginning of the war had occupied the fertile lands between the two lakes. Though reduced by repeated massacres they had succeeded in holding their own here against the Turks; but now their ammunition was running short, and utter annihilation stared them in the face. On learning of their predicament the British authorities made arrangements to send up supplies under cover of a sortie by the Assyrians, and, on July 19th, six officers and fifteen non-commissioned officers of Major Starnes’s detachment set off from Bijar with the ammunition, an escort of Hussars from Hamadan accompanying them. They were to be met half-way by a small column of mounted Assyrians, but after waiting at the rendezvous for some days without news of any movement they were unexpectedly joined by the bulk of the Assyrian army, numbering some 10,000, who had inflicted a somewhat severe blow upon the Turks. The engagement, however, had taken longer than was anticipated, and, in the absence of the fighting men, the remainder of the Nestorians became panic-stricken and began to rush southwards along the road on the heels of the army. Now the latter in their turn became infected, and there ensued a frightful and disastrous rout. Presently wounded women and children began to straggle in. This sight was too much for the Dunsters, and three officers and three sergeants, taking Lewis guns and a liberal supply of ammunition packed on baggage-mules, moved back along the human stream until they encountered the Turko-Kurdish brigands at their foul work of slaughter. Fighting, withdrawing, and fighting again, in a series of rearguard actions lasting all through a day and a night, these six brave fellows kept at bay a force of over 200 strong, until the arrival of a detachment of Hussars finally relieved the pressure. In this gallant action Captain R. K. Nicol, M.C., of the Wellington Regiment, lost his life.

A record from a publication of the Western Front Assocation records

Robert Nicol exposed himself to enemy fire whilst gallantly attempting to save the mules which enemy snipers were picking off.  His body could not be retrieved from the battlefield.

It was 5 August 1918.

Ours isn’t primarily to judge the right or wrong of the actions, and causes, of those who went before us, but there is something very 21st century about a combat death while trying to get to safety a large party of civilian (religious minority) refugees.  Perhaps that is why there have been various articles (including this one) about Nicol –  just one soldier among so many – over recent years.

Captain Nicol died in Persia and there was no marked grave.  But –  strange to realise in this era when relations between Iran and the West have been less than warm –  there is Commonwealth War Graves Commission memorial in Teheran (I gather in the grounds of the –  large –  British Embassy compound). Captain R. K. Nicol is remembered there.

teheran memorial.png

And the Commonwealth War Graves Commission record

NICOL_ROBERT_KENNETH CWGC

And here is how he was remembered back home at church.

berhampore honours board

At this distance it is easy to focus on the geopolitics, the economics, the peace process, and the next war that came too soon afterwards. But, to me, anyway, this weekend is a time to remember those who served, those who – when circumstances were thrust upon them –  exercised such courage, and those who died.

From Binyon

They shall grow not old, as we that are left grow old:
Age shall not weary them, nor the years contemn.
At the going down of the sun and in the morning
We will remember them.

UPDATE (26/11)

An article about a new memorial, at Makara cemetery, to the involvement of New Zealanders –  including Nicol –  in defending the Assyrians, and another recent article about this events.

Some reading for Todd McClay

Michael Reddell China, NZ politics, Uncategorized

Perhaps naively, I’m still in shock at those comments the other day on the situation in the Chinese province of Xinjiang from National Party foreign affairs spokesman, former senior minister, Todd McClay.

“Abuses of human rights are a concern wherever they occur,” says National’s Foreign Affairs spokesperson Todd McClay, “however, the existence and purpose of vocational training centres is a domestic matter for the Chinese Government.”

Perhaps the million of so spies forced into Uighur households should, in Mr McClay’s reading, best be described as intensive case management of needy families?

I’d come to take for granted that our members of Parliament – all sides –  pretty much knew the evil the regime was up to at home and abroad, but preferred to look the other way, keep quiet, and get along (careers to advance, Beijing to buddy up to).  I didn’t suppose that senior politicians  –  on the public payroll, not that of Beijing-affiliated entities (that’s for too many retired politicians, here and abroad) – would be so shameless as to literally run PRC regime propaganda for them.

But who knows. Perhaps Todd McClay really does believe the regime narrative?  In which case, there was a useful little exercise by a Dutch academic popped into my inbox yesterday morning, courtesy of the US think-tank the Jamestown Foundation, using fiscal transparency, PRC version, to illustrate what is going on.   I had no idea there was such transparency in China.

He begins

In August 2018, the U.N. Committee on the Elimination of Racial Discrimination expressed its concern at reports the PRC had detained as many as a million members of Muslim ethnic minorities in extrajudicial re-education camps in the Xinjiang Uyghur Autonomous Region (XUAR). At the same meeting, the PRC flatly denied the existence of “re-education camps”, with United Front Work Department official Hu Lianhe arguing that “criminals involved only in minor offenses” are assigned to “vocational education and employment training centers to acquire employment skills and legal knowledge” (China Daily, August 14).

Perhaps that was what Todd McClay had been reading?

But the PRC government’s own budgets appear to contradict these assertions. Xinjiang’s budget figures do not reflect increased spending on vocational education in the XUAR as the region ramped up camp construction; nor do they reflect an increase in criminal cases handled by courts and prosecutors. Rather, they reflect patterns of spending consistent with the construction and operation of highly secure political re-education camps designed to imprison hundreds of thousands of Uyghurs with minimal due process.

It is tempting to reproduce some of his tables – I like tables but they might be detail too far.  But here are his summary observations from the Xinjiang government budget data

This article supports this conclusion through examination of official PRC budgetary figures, analyzing spending breakdowns at the regional, prefectural, and county levels to produce findings of unprecedented granularity. Among its most striking conclusions:

  • Spending on budget items that explain nearly all security-related facility construction rose by nearly RMB 20 billion (or 213 percent) in 2017
  • Vocational spending in Xinjiang actually decreased from 2016 to 2017, as widespread camp construction began.
  • Instead, camp construction has largely been funded by the same authorities that oversaw the recently-abolished system for re-education through labor.
  • Spending on prisons doubled between 2016 and 2017, while spending on the formal prosecution of criminal suspects stagnated.
  • Expenditures on detention centers in counties with large concentrations of ethnic minorities quadrupled, indicating that re-education is not the only form of mass detainment in the XUAR.

There’s more

The region’s so-called “vocational training” is arguably not substantially different from the former re-education through labor system, which was abolished because the PRC government deemed it inappropriate for a modern society governed by the rule of law (Zenz, September 6).

Moreover, Xinjiang’s so-called “vocational training” campaign has not actually improved employment outcomes among the campaign’s target population. Official reports note that in 2017, 58,500 “poor persons” found employment, 17 percent more than planned, but not a large increase from the 57,800 in 2016 or the 57,900 in 2015. The same figure for the first three quarters of 2018 was 38,800, equivalent to only 51,730 per year [6]. This data provides a powerful official counternarrative to what Xinjiang’s governor is claiming. Neither the 2017 nor the 2018 XUAR employment reports refer to the purportedly successful “vocational training centers”.

Before he concludes

These facts do not support the notion of a large campaign to improve vocational skills. Rather, the mass disappearances of Muslim minorities in Xinjiang, beginning in early 2017, almost certainly resulted in their imprisonment in de facto political re-education institutions administered by public security or justice system authorities. It is safe to assume that in 2017, billions of renminbi were spent on these highly secure facilities, where individuals undergoing “training” are involuntarily detained for indeterminate time periods. Furthermore, budget figures indicate that it is unlikely that many of the so-called “criminals involved only in minor offenses” underwent formal trials. It is therefore entirely inaccurate to label them “criminals”. Often, their only “offense” is being Muslim.

Whatever “employment training” these facilities provide is, evidently, not administered or paid for by the vocational education system. This would explain why teacher recruitment notices for the newly constructed re-education system do not require tertiary degrees or relevant skills, in stark contrast to genuine vocational education (Zenz, September 6).

The actual employment benefit of the camps’ re-education “training” is questionable. Quite the contrary: the real goal of Xinjiang’s “skills training” campaign appears to be political indoctrination and intimidation.

In a way it is sickening to even have to write this bloodless stuff.  Every honest and decent person with the slightest interest knows what this campaign is about –  and it isn’t better job opportunities.  But careful work like that of Adrian Zenz helps remove any sort of fig leaf that people like Todd McClay might try to use for cover.

And what of those million spies forced on Uighur households? I’d urge you to read the full story, which ends with this chilling reflection

The tyranny that is being realized in Northwest China pits groups of Chinese citizens against each other in a totalitarian process that seeks to dominate every aspect of life. It calls Han “relatives” into coercive relations with their Uighur and Kazakh hosts, producing an epidemic of individualized isolation and loneliness as families, friends, and communities are pulled apart. As new levels of unfreedom are introduced, the project produces new standards of what counts as normal and banal. The “relatives” I spoke to, who did the state’s work of tearing families apart and sending them into the camp system, saw themselves as simply “doing their jobs.”

I believed them. For the most part, they simply did not seem to have thought about the horror they were enacting. No free press was available to them. The majority of the people I interviewed simply did not know or believe that the reeducation camps function as a Chinese-specific form of concentration camps where beatings and psychological torture are common, or that Uighurs and other minorities tended to view being sent to the camps as a form of punishment. Only one of the 10 Han people from Xinjiang I interviewed believed that the camps were functioning as prisons for people who were guilty of simply being in the wrong religious and ethnic categories. It is also important to remember when writing about Han civilian participation in the mass detention of Muslim minorities, as David Brophy and others have noted, that Han civilians who resist state policies toward Uighurs put themselves in serious danger. As one of my Han friends from Xinjiang told me, in this part of the world the phrase “where there is oppression” is met not with the phrase “there will be resistance,” but rather, “there will be submission.” Given the totalitarian politics of the Xinjiang police state, Han civilians in Xinjiang often appear to feel as though they have no choice but to participate in the state-directed oppression of Muslim minorities.

Citizens of totalitarian states are nearly always compelled to act in ways that deny their ethical obligations. In order for a grass-roots politics of Han civilian refusal of Chinese state oppression of Muslims to even be imaginable, what is taking place in Northwest China needs first to be accurately described. As Hannah Arendt observed decades ago, systems like this one work in part because those who participate in them are not permitted to think about what they are doing. Because they are not permitted to think about it, they are not able to fully imagine what life is like from the position of those whose lives they are destroying.

Perhaps Todd McClay thinks this is all made up too?  If so, I can only do that rare thing and urge him to read the strident ultra-nationalist spinoff of the People’s Daily, the Global Times, where the story a couple of days ago was.

1.1 million civil servants in Xinjiang pair up with ethnic minority residents to improve unity

Northwest China’s Xinjiang Uyghur Autonomous Region has implemented the pairing and assistance program between officials and the ethnic minority citizens to promote communication and interaction among different ethnic groups in Xinjiang.

Until September 2018, some 1.1 million civil servants have paired up with more than 1.69 million ethnic minority citizens, especially village residents, People’s Daily reported on Wednesday.

The report said that various administrative departments, enterprises from the central government and military departments, including the Xinjiang Production and Construction Corps and Xinjiang Armed Police Corps, have made over 49 million visits to local residents. The number of activities themed “ethnics unite as a family,” held by these departments, reached more than 11 million.

“The pairing and assistance program has been implemented for two years, which is a successful practice for Xinjiang,” Zhu Weiqun, former head of the Ethnic and Religious Affairs Committee of the National Committee of the Chinese People’s Political Consultative Conference in Beijing, told the Global Times on Wednesday.

Besides promoting the unity of different ethnics in Xinjiang, Zhu noted that the program is beneficial to both the masses and civil servants in Xinjiang, as it helps officials get close to the grassroots level of Xinjiang society, bringing advanced technology and views to rural districts, which can solve their life difficulties and develop the productivity.

“It can also help officials of Xinjiang to improve their serving conscious and capabilities,” he added.

Zhu pointed out that the program should be insisted for a long time in accordance with the practical need.

The program began from October 16 in 2016, encouraging civil servants to interact actively with the masses in Xinjiang through various methods like pairing and regarding as relatives.

It is a sickening level of repression, intimidation, destruction of families, of faith, or cultures, and so on.  And that is before one gets onto the bird-like spy drones (which initially sounded a bit fanciful, but the story is fron a regime-sympathising Hong Kong newspaper) the movement restrictions, the forced organ transplants and so on.

That’s unambiguously sickening.  But so is senior elected politicians in a free Western state –  who know better – trying to minimise evil, spin the regime propaganda, and provide cover for one of the worst regimes on the planet.  Without any legitimate excuse whatsoever.

 

 

Some thoughts on the Monetary Policy Statement

Michael Reddell Monetary policy

First, some more kudos (albeit slightly ambivalent) to the Governor.  As of this Monetary Policy Statement they have started publishing a spreadsheet with detailed quarterly forecasts for about 30 variables.  I remain unconvinced of the value of such forecasting (especially up to 3.5 years ahead) –  which has a non-trivial opportunity cost – but if they are going to do such forecasts it is only right that we should have access to them.  The forecasts won’t be right but they will shed a little more light on how the Bank is thinking about how the economy is (or might) work, and the usefulness of the table will increase as a time series of such forecasts is built up.     And one day perhaps they’ll develop sufficient confidence to release, with a lag, the staff background papers that contributed to the forecasts.

Watching the webcast press conference, it was curious to see the Governor introduce his chief economist with the description “the wisest man in the Reserve Bank”, just a few days after the Governor had stripped the same individual of his Assistant Governor title and demoted him –  by putting another senior manager between McDermott and the Governor.   Perhaps wisdom isn’t greatly valued at the the top of the Reserve Bank?  More probably, it was just another cheap Orr line.

As I’ve noted previously, McDermott often isn’t that convincing in speeches and press conferences.  We had another example yesterday.   The Bank seemed to be a bit on the defensive over recent very short-term forecast errors, and this time I was mostly inclined to sympathise with them: there are significant uncertainty margins in how things are even measured, and you get the sense reading the SNZ commentary that (for example) even they don’t really believe the size of this week’s reported fall in the unemployment rate.  But McDermott went on to over-egg things claiming, as if his name was really Pangloss, that “the outcomes for monetary policy are as good as it gets”, asserting that things were turning out just as planned.  They had cut the OCR in 2016, we were told, and what we see is what you’d expect having done that.

I doubt the Governor was particularly taken with that line of argument.  He –  rightly –  pointed out several times that inflation is still below the target midpoint, and their job is still to get it back up.  They need considerable capacity pressures to achieve that.

Of course, there is a modicum of truth in what McDermott had to say.  Having stuffed things up in 2014, raising the OCR when it wasn’t needed (with the full support of McDermott, as yesterday’s chart on the advice to the Governor confirms), they had to cut the OCR, by quite a lot in the end.  Do that and of course you should expect inflation to pick up gradually –  take your foot off someone’s throat and they start breathing more freely again too.

But, of course, the Bank has been telling us for years that they are aiming to get inflation back to 2 per cent, and it was the year to December 2009 that their (often preferred) sectoral core factor model measure of inflation was at 2 per cent.

The Bank doesn’t publish forecasts of core inflation, but the medium-term inflation forecasts they do publish are good proxies (since two years out one doesn’t usually know about petrol price or tax shocks that throw headline inflation around).  Two years ago, at the end of the Bank’s OCR-cutting phase, they forecast that (core) inflation would be back up to 1.9 per cent by now.  In fact, it was only 1.7 per cent in the year to September.   A year ago, in the November 2017 MPS, they were forecasting inflation would be either 1.9 or 2.0 per cent in all their medium-term horizons.   But in the latest projections they don’t seem to see (core) inflation back to 2 per cent until mid-2020, long enough that they will have been below the target midpoint for more than a decade.

Perhaps one shouldn’t cavil too much about current outcomes, but it has been an awfully long time coming, and the wait needn’t have been anywhere as long if the Reserve Bank’s senior managers had been doing their job better.  Oddly, I also heard the Governor twice suggest that “only six months ago people were suggesting we weren’t doing our job [and should have cut]”.  I’m not sure who he is referrring to here –  I don’t recall a groundswell of calls for rate cuts six months ago –  but if I’m among those he is responding to, I hold to my view: we would have had better inflation outcomes (the primary job of the Bank) had the OCR been lower in 2016 and 2017. (That isn’t the same as saying I’d cut right now.)

And eight or nine years into this economic expansion, it isn’t as if the Bank is well-positioned should another serious recession come along soon.  The Governor was asked again about this yesterday, and gave his (now customary) complacent response.   There was, we were told, nothing to worry about.  The OCR didn’t really matter that much, because it was not much more than happenstance that that was the instrument currently being used.  There was lots of handwaving, and (still) not a lot of convincing argumentation.  And never an acknowledgement that if other countries are even somewhat constrained (or feel they are) that will markedly worsen the environment we face.   Perhaps one day the Governor could devote a speech to the subject, or is he not ever going to do a speech on what is, still, his primary statutory responsibility?

There was reference again to a Bulletin article the Bank published a few months ago, which I wrote about here.   I stand by my conclusion

In summary, I welcome the fact that the Reserve Bank has begun to talk more openly about the potential limitations in its response to the next recession, but it is disconcerting that they still seem to be trying to minimise the potential severity of the issue.   In that, they aren’t alone.  I’m not aware of any central bank that has yet laid out credible plans to minimise the damage (although senior officials of the Federal Reserve have been more willing to talk about the issues openly).  In that, they are doing the public a serious dis-service, and risking worse outcomes than we need to face –  repeating the sort of reluctance to address issues that saw the world drift into crisis in the early 1930s.  Fortunately for the central bankers perhaps, it won’t be central bankers personally who pay the price.  That won’t be much consolation for the many ordinary people who do.

Since politicians, and not central bankers, are accountable to the voters, the Minister of Finance should be taking the lead in requiring a more pro-active (and open) set of preparations to be undertaken by the Reserve Bank and The Treasury.

(There was also a brief exchange –  not entirely audible on the webcast – about a peculiar episode in the last recession when it appeared that the Bank had convinced itself the OCR couldn’t safely be cut below 2 or 2.5 per cent.  I was at The Treasury at the time and when we heard of this stance, it struck us as distinctly odd.  The argumentation  –  repeated yesterday –  apparently was that if they cut further the exchange rate could fall very sharply.  And yet in an open economy, with well-hedged foreign debt, a fall in the exchange rate is a natural and normal part of the stabilising transmission mechanism.  I mention it here mostly as an example of the sort of central bank caution –  here and abroad –  that has contributed to such weak inflation over the last decade and (at the margin) at muted recovery.  Even if the specific floor has changed, it isn’t clear how much the mindset has.)

Perhaps one of the most interesting aspects of the projections yesterday was the inflation numbers. Usually –  for decades now – the published projections for inflation have involved a gradual return towards the midpoint of whatever the inflation target range is at the time.   Sometimes that return path looked rather slow –  in the Bollard years when core inflation was around 3 per cent, Alan was happy enough to publish projections showing inflation only back to 2.5 per cent at the end of the forecast horizon – but it was, almost without exception, a convergent process.  If you were starting from 3 per cent with a target midpoint of 2 per cent, the end-point forecasts were 2 or a bit above, not (say) 1.8.  And the same when, as in recent years, the starting point has been below the midpoint.

But not now.    Here are the medium-term inflation projections (those two and more years ahead), which monetary policy can do a lot about if it chooses.

med term projections

Mostly –  and the more so the further out –  above 2 per cent.    Looking back a couple of years I did find an MPS where the final projections were at 2.1 per cent, but it was clearly a case where the then-Governor had chosen to portray a dead-flat OCR track.  By contrast, in these latest projections the OCR has risen by 66 basis points by the end of the forecast horizon.

The Bank doesn’t seem to have explained quite why it (well, the Governor) is making this choice, which is clearly a conscious and deliberate one.  There seem to me to be two possibilities:

  • the first is that, given the new employment dimension to the mandate, and that they had expected unemployment to stay around 4.3 or 4.4 per cent for the next 18 months (prior to this week’s HLFS numbers), the Governor was deliberately choosing to prioritise further reductions in unemployment over meeting the midpoint inflation target, or
  • alternatively, given the risks going into the next recession he is deliberately aiming for inflation in the upper half of the inflation target range to pull inflation expectations up more securely, and provide more leeway in the next recession.

There were hints of something along these lines in the reports of the off-the-record speech Orr gave on such matters a few months ago, but we’ve had nothing open and official.  That isn’t good enough.

(I’m quite comfortable with leaving the OCR unchanged at present –  relative to the alternative of signalling an early tightening –  as I’d still be surprised if, between domestic pressures and external threats, we saw anything like the growth the Bank is forecasting over the next year or two.  But the actual policymaker owes us a more considered explanation for the choices and tradeoff he personally is making with our economy.)

And whatever the explanation, the Governor clearly has some way to go to convince people putting their money on the medium-term inflation outlook.  Here is the chart of the breakeven inflation rate from the government bond market for the second half of this year.

breakeven 2018

The data are up to yesterday, so include both the unemployment and MPS news.  Expectations of medium-term inflation, as reflected in market prices, remain stubbornly low.

As I said at the start of this post, the new table of forecast data the Bank is releasing enables to illustrate a little more clearly how the Bank thinks things are working.   For example, this chart shows their projections for quarterly growth in potential output and for annual net immigration (working age population) –  the latter being a series we won’t even have on any sort of timely basis in another month or so.

productivity

Population growth (of working age) is one of the biggest single contributors to any sense of what potential output growth might be. But the Bank expects the net migration inflow to more than halve, while potential output growth is barely changed. (And for anyone who responds “but isn’t that what you say we should expect”, the Bank’s forecasts have no further reduction in the exchange rate and has, in time, increases in real interest rates.)   Using their GDP and employment forecasts, productivity growth (GDP per person employed) averaged 0.6 per cent per annum over the last decade, has been non-existent over the last couple of years, but is expectedly to rebound strongly to around 1.5-1.6 per cent per annum in 2020 and 2021.    Without any real sense of the channels at work that might bring about this startling rebound, it feels like little more than wishful thinking.  That isn’t new –  I’ve highlighted in repeatedly, under both Wheeler and Orr.  It might even be convenient for the government, but only until  –  most probably – the outcomes again disappoint.

 

Inching towards greater transparency

Michael Reddell Reserve Bank Act reforms, Transparency, Uncategorized

Several years ago the then Reserve Bank Governor went public when there was some criticism around an OCR decision (more so about communications surrounding it) telling us that all his advisers had on that occasion supported his decision.   A group of senior staff provide written advice at each OCR decision.

If it was good enough for him to disclose such information when it suited him, I thought it should be fine to have the information disclosed routinely, including for OCR decisions some time in the past.  I lodged an OIA request accordingly.

Not that surprisingly, given the Bank’s approach to the OIA, I didn’t get anywhere.  They refused to release any other information about previous OCR decisions and, a bit more surprisingly, [as I recalled things, but see below] they managed to get the Ombudsman to provide cover for their refusal.

But in this morning’s Monetary Policy Statement we find almost exactly the data I requested 2.5 years ago, in the form of this chart.

OCR advice

Kudos to the Governor for releasing the information, even (a) this belatedly, and (b) only for the period to the end of 2016, which is now two years ago.  We still have no idea what the balance of advice has been over the last couple of years, most of which wasn’t even in the current Governor’s term.  But it is better than nothing.

I was among this group of advisers up to and including the March 2014 decision –  where I’m pretty sure I was the grey vote (opposed to the OCR increase).

Given that the Governor has now released so much information, I’m tempted to lodge another OIA request for the more recent information –  there cannot possibly be any market sensitivity or other problems (defensible under the Act) in knowing that (say) one advisor out of ten favoured an OCR cut six months ago –  but as the legislation is about to change perhaps I will leave it for now.

The Governor goes on to note that

Generally, there was a clear majority in the balance of advice. Should the current Reserve Bank Amendment Bill become law, our intention would be to publish the formal votes of the Monetary Policy Committee each time a vote is taken. It is envisaged that a vote would not be called for every meeting, but only when needed.

I found this mildly encouraging, Until now that rhetoric has tended to emphasise very heavily the consensus model the previous Reserve Bank management favoured (under which any differences of view –  inevitable in a well-functioning organisation dealing with so much uncertainty –  would be obfuscated and kept secret).  At least now there is a straightforward explicit statement that the formal votes will be published when such votes are taken.   It still isn’t too late for the select committee looking at the bill to amend the legislation to require votes to be taken, and require the number of votes for each position to be published.

There is still a long way to go in getting the Reserve Bank to the point of operating transparently, even reaching (say) the level managed by the Treasury through the Budget process.  I still have an Official Information Act request in, now with the Ombudsman, over the Reserve Bank’s refusal to release background papers underpinning claims it made (including around KiwiBuild) in last year’s November Monetary Policy Statement.   The Bank has long argued that it would be destabilising, undermining the effectiveness of policy, if anyone ever saw any internal background papers.    They claim, citing the OIA itself, that the substantial economic interests of New Zealand would be damaged.

Some months ago the Ombudsman advised a preliminary view that would have continued his office’s longstanding practice of allowing the Bank to keep almost anything associated with monetary policy secret.  I made a submission in response that highlighted what appeared to be a serious inconsistency in the way, for example, budget papers are treated.  This was some of what I wrote

In general, I think Mr Boshier’s provisional decision, if allowed to stand, would seriously detract from effective accountability for the Reserve Bank, and in particular would expose the Bank routinely to less scrutiny and challenge than Cabinet ministers or government departments receive.  That cannot be the intention of the Act.    That parallel doesn’t seem to have been taken into account at all in the draft determination.
Thus, Cabinet papers underpinning key government announcements are frequently released, sometimes in response to OIA requests and at other times pro-actively.  But so too is advice to a Cabinet minister from his or her department.  That is so even when, as is often the case, officials have a different view on some or all of the matters for decision from the stance taken by the minister.   A classic example, of course, is the pro-active release of a great deal of background material, memos, aide-memoires etc compiled and submitted as part of the Budget formulation process.  Many of the working papers in that case may never even have been seen the Secretary to the Treasury but will have been signed out to the office or minister at the level of perhaps a relatively junior manager.  Many will have been done in a rush, and be at least as provisional as analysis the Governor receives in preparing for his OCR decision.  I’ve been personally involved in both processes.
Is it sometimes awkward for the Minister of Finance that his own officials disagreed with some choice the minister made?  No doubt.  Do ministers sometimes feel called upon to justify their decisions, relative to that official alternative advice? No doubt.  But it doesn’t stop either the provision of such dissenting (often quite provisional) analysis and advice, or the release of those background documents.
The sorts of arguments the Reserve Bank makes, and which Mr Boshier appears to have accepted, could well be advanced by Cabinet ministers (eg clear messaging about this or that aspect of budgetary or tax policy –  all of which are substantial economic interests of the NZ government).  If they have advanced such arguments, they have generally not succeeded.  And nor should they.  Doing so would undermine effective accountability or scrutiny, even though the Minister’s formal accountability might be to Parliament (he has to get his Budget passed).
The relationship between the Minister and his or her department officials is closely parallel to that between the Governor of the Reserve Bank –  the sole legal decisionmaker (who doesn’t even have to get parliamentary approval of his decisions) –  and the staff of (in this case) the Economics and Financial Markets departments of the Bank.  One group are advisers, and the other individual is the decisionmaker.  The fact that they happen to both part of the same organisation, doesn’t affect the substantive nature of that relationship.   Manager and senior managers in the relevant departments are responsible for the quality of the advice given to the Governor, in much the same way that the Secretary is responsible for Treasury’s advice to minister (and at his discretion can allow lower level staff to provide analysis/advice directly to the Minister or his office.   I would urge you to substantively reflect on the parallel before reaching your final decision, including reflecting on how (if at all) official advice on input to the OCR is different than official advice (including supporting analysis) on any other aspect of economic policy.
Mr Boshier’s argument about potential damage to substantial economic interests itself seems insubstantial, and displaying little understanding of how financial markets (and the market scrutiny of the Reserve Bank) work.  It also appears to be based wholly on official perspectives; officials who will routinely oppose transparency (except as they control it).    All those who follow, and monitor, the Reserve Bank recognise that there is a huge degree of uncertainty about any of the assumptions the Bank (or other forecasters) make, Indeed, the Bank itself stresses that point.    Markets trade changing perceptions of the outlook all the time, each piece of new data slightly adding to the mix.   Most monitors of the Reserve Bank (many of whom have previously worked for the Bank) recognise the distinction between analysis and advice, provided as input to the Governor, and the Governor’s own final decision and communication thereof.    And since markets –  and the Bank –  know that any projections are done with huge margins of uncertainty, the pretence that economic outcomes could be substantially damaged by people knowing there were a range of views or analysis is almost laughable.  Again, there is also a distinction to be considered between possible institutional interests of the Reserve Bank and the substantial economic interests of New Zealand.   You seem to treat those two sets of interests are the same thing, but they are not.

Given that some more months have now passed I hope the Ombudsman is seriously considering these arguments.   But whether he is or not, I call on the Governor to take seriously his words about greater openness and more transparency, and put in place proactively a new regime (perhaps for the new MPC) in which staff background papers provided to the Governor and MPC are released, with a suitable lag (perhaps four to six weeks) as a matter of course.  Doing so would be a significant step forward, and should help to boost market and public confidence in the Bank.  It wouldn’t be terribly radical; it is pretty much what is done for the government’s Budget each year.  Perhaps the new Treasury observer could explain to his Bank colleagues how it works, and how Treasury continues to function, continues to offer free and frank advice, even knowing that in time the background work will most probably be open to scrutiny.  It is how open democracies, open societies, should work.

I might have some other thoughts tomorrow on more substantive aspects of the Monetary Policy Statement.

UPDATE:  Well, it seems that credit is due to the Ombudsman not to the Governor. A few minutes after putting this post, I received this letter from the Bank

Dear Mr Reddell

At the invitation of the Chief Ombudsman, the Reserve Bank has reconsidered your request for the aggregate numbers of MPC members favouring each rate option for each OCR decision since mid-2013. You made this request on 14 March 2016.

On the basis that the requested information has become sufficiently historic, the Reserve Bank has decided it can now release the information. You can find the information on pages 13-14 of today’s Monetary Policy Statement at the following web address www.rbnz.govt.nz/monetary-policy/monetary-policy-statement.

 

 

 

Perhaps standards are different in Rotorua?

Michael Reddell China, NZ politics, Uncategorized

When you think that our politicians can’t sink much lower when it comes to matters related to the dreadful regime in Beijing all one has to do is wait another day or two.

Stuff has a major piece (a double page spread in this morning’s Dominion-Post) about the situation of the Uighur people in Xinjiang province in China, focusing on the stories of some of the Uighurs now living in New Zealand.

But what I wanted to highlight was the reaction of our politicians, National Party foreign affairs spokesman (and MP for Rotorua) Todd McClay in particular (emphasis added).

Ardern’s office didn’t respond to questions. Foreign Affairs Minister Winston Peters is overseas and also couldn’t comment.

“Abuses of human rights are a concern wherever they occur,” says National’s Foreign Affairs spokesperson Todd McClay, “however, the existence and purpose of vocational training centres is a domestic matter for the Chinese Government.”

McClay adds that “if credible evidence of human rights abuses came to light,” National would expect the government to “make representations to China through formal channels”.

The Chinese embassy did not reply to any questions about the issue.

So neither the Prime Minister nor the Foreign Minister would comment (in this era, being overseas is not a justification for saying someone “couldn’t” comment).    We saw the Prime Minister’s own feeble stance on this issue a couple of weeks ago

She said she might raise her concerns at a future meeting with Chinese officials, but made no firm commitment.

But McClay’s stance plumbs whole new depths.   Had he said “look, we know Beijing is an awful regime and often treats its citizens abominably, but we really want an upgraded FTA”, that would be bad enough, but at least it would be honest.  Instead he adopts the chilling language of the regime itself, suggesting that these (forced) internment and indoctrination camps are “vocational training centres”, and that the accompanying intense surveillance and control regime (electronic surveillance, let alone the government spies Uighur families are forced to host in their own houses) is just as nothing.  Does he suppose that the million of so people locked up in these centres are there voluntarily?  What bits of the evidence of systematic abuse and repression does he not believe?  Or, more probably, does he just not care?

All manner of brutal regimes have had Western apologists.  But history tends not to look very kindly on them.   And this man sits in our Parliament –  alongside Jian Yang –  aspiring to again be a senior Cabinet minister.  In my view, anyone that senior who sinks that low should never be allowed anywhere near the reins of government.  He disgraces himself, and disgraces a once-decent and honourable party.  The same party whose current leader last year, as a senior government minister, signed up with Beijing to some sickening aspiration to a “fusion of civilisations”.

To be clear, the current government seems no better, content to sit by as evil happens, even if not quite so sickeningly crass in their wording as Todd McClay.

As the Stuff article notes, more or less in passing, China’s human rights record has been under review in Geneva this week (part of a five-yearly review that all UN members face).   I’m no great fan of the United Nations or its associated bodies, and the Human Rights Council seems to be mostly a sick joke.  Nonetheless, these forums –  the Universal Periodic Reviews –  do pose the opportunity for other countries to ask (openly) searching questions about evident or apparent abuses.    A leading US China scholar wrote about it on his blog

On Nov.6, the People’s Republic of China underwent its third UN Universal Periodic Review (UPR), which is a peer review at the Human Rights Council of China’s human rights record. Each country, ridiculously, only had 45 seconds to speak! All eyes were watching if China’s mass incarceration of Muslims in Xinjiang and related repression outside the detention prisons would be criticized. Many countries did speak out, including the U.S., Canada, Germany and the UK. The only Muslim country that raised this issue is Turkey. It is shameful that Muslim countries and their regional organizations have done so little to date. The PRC cleverly lined up a large number of sycophant states to sing its praises and take time away from states that wanted to be critical. (All UPR-related documents are here at the UN’s website.)  The PRC has moved relentlessly to increase its influence over the Human Rights Council while the U.S. has withdrawn from it. Accordingly, many countries, including developing and authoritarian countries that rely on China’s economic ties, lavished high praise on China’s human rights achievements, instead of treating the session seriously.

But in addition to the 45 seconds, individual countries could lodge written questions.  Many did.    From our traditional allies, there was (a selection in each case)

The UK asking

  • When will the Government implement the recommendations made by the UN Committee for the Elimination of Racial Discrimination regarding Xinjiang Autonomous Uyghur Region, including to: halt the practice of detaining individuals who have not been lawfully charged, tried, and convicted for a criminal offence in any extra-legal detention facilities; immediately release individuals detained under these circumstances; eliminate travel restrictions that disproportionately affect members of ethnic minorities; and provide statistics on the numbers of those held involuntarily in the past 5 years?
  • What steps is the Government taking to ensure that freedom of religion or belief, freedom of movement, and cultural rights are respected and protected for all religious and ethnic groups in China, particularly those in Tibet?
  • What steps is the Government taking to ensure that lawyers, activists, journalists and human rights defenders including Wang Quanzhang, Yu Wensheng, Jiang Tianyong, Li Yuhan, Gao Zhisheng, Tashi Wangchuk, Ilham Tohti, Wu Gan and Huang Qi are protected from harassment, mistreatment and discrimination, and that those detained for merely exercising their constitutional rights are released without delay?

And the US

  • Can China provide the number of people involuntarily held in all detention facilities in Xinjiang during the past five years, along with the duration and location of their detention; the grounds for detention; humanitarian conditions in the centers; the content of any training or political curriculum and activities; the rights detainees have to challenge the illegality of their detention or appeal the detention; and any measures taken to ensure that their families are promptly notified of their detention?
  • Can China clarify the basis for its apparent criminalization of peaceful religious practices as justification to detain people in these political “re-education” camps in Xinjiang, as well as which officials are responsible for this policy?
  • Since the Chinese constitution guarantees religious liberty, what steps is China taking to stop the continued repression of religious freedom, such as increasingly strict regulations being passed or proposed on religious activity China has passed or proposed, the detention and mistreatment of Falun Gong practitioners, and the church closure and demolition campaigns seen in multiple provinces throughout the country?
  • What is China doing to end the unlawful practices of torture, secret detentions, and detention without due process halt the practice of detaining individuals who have not been lawfully charged, tried and convicted for a criminal offense in including Wang Quanzhang, who has been held incommunicado for over three years without an open trial, and Swedish citizen Gui Minhai, who was released in 2017 and redetained in January 2018?

And Australia

·                 Paragraph 4 of China’s 2018 National Report states that “there is no universal road for the development of human rights in the world”, with the relevant section headed “human rights with Chinese characteristics”; in contrast China’s 2013 report stated “China respects the principle of universality of human rights”.

Does China still accept the principle of universal human rights, and if not, can China explain how its conception of human rights fits into the international human rights regime built on the concept of universality? Can China explain how “human rights with Chinese characteristics” differs from universal human rights, and if it does not, why it wishes to introduce this distinction?

 ·                 Australia is concerned about reports regarding the arbitrary detention of Uighurs and other Muslim groups in Xinjiang, and the lack of transparency and access for members of the international community, including monitors from the United Nations Office of the High Commissioner for Human Rights.

What steps is China taking to ensure that the concerns raised by the United Nations Committee for the Elimination of Racial Discrimination (CERD) are being addressed in an open and transparent manner?

And what of New Zealand?   Perhaps our diplomats used their 45 seconds in a courageous and searching intervention?  But there was no sign of any advance written questions.  No sign our government cares even a little.

It isn’t even as if this is some left vs right issue.  Human Rights Watch and the United Nations are alarmed by what is going on, but so (according to a piece in my inbox this morning) is the libertarian think-tank the Cato Institute.     Can we make a difference?  On our own no, although us speaking up (even quietly) would probably lead Beijing to sit up and take a bit of notice – if even their pet Caucasians (a description someone passed on) are willing to speak, perhaps we need some different tactics? – but sometimes you just have to do what is right.

I’m going to end as I ended a post last week

The Churchill quote – from his famous ‘iron curtain” speech – is very apposite, but in the specific New Zealand context, and the way our politicians court the regime and fear doing or saying anything even slightly controversial, the commentator’s own line was a nice place to end.

It comes back to the values, not bank balances, we want to have for ourselves and for our children.

Perhaps ethics, morality and decency mean something different in Rotorua. But I’m pretty sure it isn’t that.  It is just that they seem to mean something different at the top of our two main political parties.

The PRC and New Zealand: bits and pieces

Michael Reddell China, NZ politics, Uncategorized

For anyone who hasn’t yet listened to it I recommend Anne-Marie Brady’s interview with Wallace Chapman on Radio New Zealand last weekend.  Half-hour interviews are pretty rare, and this one gives a good flavour of the issues and concerns she has been raising since the publication of her Magic Weapons paper last September.  I’m not going to go over old ground again, but in listening to her I found four points worth noting:

  • she has been surprised by how slow the New Zealand official reaction has been to the material revealed in the Magic Weapons paper,
  • in discussing the Chinese-language media here, she noted that the Chinese Herald had initially reported her paper and also some of Matt Nippert’s Herald articles about Jian Yang.  She heard later that the editor had been called to Beijing to be straightened out, and that fresh people had been sent in.  There been no repeats of such deviations from the Party line (the PRC strategy to “harmonise” foreign Chinese language media with the line from Beijing) since.    She noted in passing how large the Chinese-language media is (in a population of only around 200000) , contrasting that with the straitened circumstances of the mainstream media in New Zealand.   “Who is funding them”, she asked.  The implied – if unstated – answer was pretty clear.   She sees this situation as itself a breach of New Zealand’s sovereignty.
  • she was asked about the description of New Zealand as the “soft underbelly of Five Eyes”.  As she noted, this wasn’t her description but the sort of line she heard repeatedly from the capitals of our traditional allies.  Of all that was in the paper, she suggested that this was the line that had riled official Wellington most.
  • asked about the (as yet unresolved) burglaries of her house and office, she was cautious about how much she said, but was clear that in her view there were unmistakeable indications of Chinese government involvement.

Brady’s paper is essential reading for the specific New Zealand context.  In the last week or so I’ve read a couple of other papers about the international situation, which I’d also recommend for anyone interested.   There is a paper from a researcher for a Canadian think-tank, “Hard Edge of Soft Power”, which I thought was an exceptionally clear description of the issues and challenges for countries like ours (and written for a general intelligent audience, whereas Brady’s paper (as released) was an academic conference paper and draft book chapter).  And then there was the original research from the Australian Strategic Policy Institute on the way in which Chinese military academy researchers have increasingly been using collaboration with Western universities (notably the UK, Australia, and Canada) to tap, and develop, potentially highly sensitive military technologies (summary here, including a link to the full report).

In terms of background resources, I just noticed that the Asia Media Centre here has a timeline of coverage on the PRC influence issues, with links to lots of the articles that have appeared over the last year or so.

Meanwhile the New Zealand government and opposition blithely act as if there is no reason for any concern.  They know what is going on, of course.  But they just don’t care.

Occasionally there are a few suggestion that things might be a little different, at least as far as our foreign and defence policies are concerned.   On the count, I noticed a post on the (relatively new) Point of Order blog (set up by a group of veteran political journalists).    The post (“Peters leading NZ away from trying to balance relations with US and China”), was clearly rather well-informed (probably from the Minister himself).   There we learned that

Led by Foreign Minister Winston Peters, the Coalition government has eased away from the previous National government’s ready accommodation with China and the presumption that NZ could easily balance United States and China relations to a more hard-nosed approach.  Several elements have contributed.

First, a powerful pro-Beijing faction in the Ministry of Foreign Affairs and Trade has lost influence.

Second, the present government is more attuned to current geopolitical shifts in NZ’s immediate north-west. Now there is a new, sharper understanding of the implications of a move by China into contacts with NZ’s immediate Pacific environment such as the Cook Islands.

It went on

Many New Zealanders   who cherish  their  country’s  “independent” foreign policy  have  little   idea   of  how  active   China has been  in  spreading its influence  into  this region.  Even  within  the  Labour and  Green  parliamentary  elements of the  government, where anti-Trump  feeling is dominant,  the  realignment of  NZ towards the stance  of    its  long-time closest  partners  may not  yet be fully understood.

and

But it is clear  Winston Peters   has been  instrumental  in the policy  revision  in Wellington, moving   NZ  in its attitude  to Beijing back towards that of  its closest  partners…….

The intelligence community is relieved by the government’s attitude. Before the general election, the National government seemed unwilling to accept or acknowledge the extent of Chinese penetration despite the growing indications of influence in NZ Chinese media and the apparent interventions of Chinese agents in NZ academic circles.

My reaction at the time was much as it was when the Defence strategy document was released a few months ago “well, that is all very well –  and I welcomed the P8 purchases – but I will believe it means anything much when I hear it from the Prime Minister”.  She, after all, leads the largest party in the government, and – together with National –  her party is deeply complicit in the kowtowing to Beijing, at home and abroad.     The Prime Minister was never heard from on the defence strategic issues.

In a sense, I didn’t have long to wait this time. In her weekly interview on Morning Report on Tuesday the Prime Minister was asked about Chinese overt and covert influence activities in the Pacific and in New Zealand and whether she had any concerns.  Kim Hill –  the interviewer –  explicitly referenced the situation in the Cooks and Nuie (touched on in a Sunday-Star Times story) and Anne-Marie Brady’s work.   It is hardly a secret that China has been very active in the Pacific (both Melanesia and Polynesia) and is widely thought to be sounding out possibilities for future naval bases etc.

And what did our Prime Minister have to say?  She burbled on about the “realm territories”  –  officialese for the unusual constitutional position of the Cooks and Niue – trying to somehow allay any concerns solely with the irrelevant observation that the two countries had had diplomatic relations with China for some years.   She said she didn’t want to single out any individual player –  as if, you know, someone other than Germany was threatening Czechoslovakia in 1938 –  and talked only about how we (New Zealand) needed to up our game in the Pacific regardless of what anyone else was doing.  Of New Zealand and China, she claimed that our relationship was “broad, complex, and vital”, but with no sign that she had any concerns whatsoever.   Of course, she asserted that New Zealand policy would always be made in New Zealand’s interests, and then went on to adopt the juvenile phrase beloved of the New Zealand left “we will always take an independent foreign policy”.  What, even when we face common interests and threats?   She somehow managed to avoid engaging on the domestic issues – be it donations, Jian Yang, collaboration between universities and the PRC, the break-in to Anne-Marie Brady’s house, the attempts to control the local Chinese language media, to suborn or silence ethnic Chinese New Zealanders.  Just nothing.

Winston Peters can talk a good talk to friendly –  but not widely read –  journalists, and even when he meets Mike Pompeo or Marise Payne. Perhaps it will even temporarily ease some of the behind the scenes pressure on the government, to stop lagging behind in taking the PRC influences activities more seriously. But until the Prime Minister is on side, openly engaging with the public we can safely assume nothing much we change about the corruption of our system and society –  National and Labour hand in hand.

(One reader observed to me yesterday that to listen to the Prime Minister on such issues it is rather like a Palmolive ad –  “squeaky clean”, nothing to see here.)

Take, for example, the ongoing disgrace of Jian Yang.   It is pretty bad that our immigration and citizenship officials appear to have done nothing about his acknowledgement a year ago that he misrepresented his past –  in the PLA military university –  when applying to move to New Zealand (not only has he acknowledged misrepresenting his past, but claimed –  as if in defence –  that the Beijing authorities had told him to do so).  It is worse –  frankly extraordinary – that a former PLA intelligence official, member of the Chinese Communist Party, someone never once heard to criticise any aspect of PRC policy (despite its heinous human rights record, expansionist foreign policy etc), sits in our Parliament –  defended by the National Party, and accommodated (left unbothered, not criticised) by the Labour Party (and all the other parties).  When did the party of the decent centre-right middle classes come to be the party that covers for such a person, simply (it appears) for all the donations he manages to pull in, and despite his ongoing close associations with the embassy of Communist China?

As part of the new podcast series by John Campbell, TVNZ yesterday released a podcast on Chinese influence in New Zealand, including the cases of Yikun Zhang (he of no English, very close Communist Party ties, donations and –  nominated by both parties – honours) and Jian Yang.    I was among those Campbell interviewed, along with Tze Ming Mok (an Auckland ethnic Chinese commentator, of Singaporean/Malaysian background) and Clive Hamilton, the Australian academic.   There isn’t a great deal that is new in the podcast, but the detail I thought was telling was Campbell’s effort to give Jian Yang a chance to talk.  He went to the constituency office Jian Yang shares with Paul Goldsmith.  Jian Yang was in the office, but simply refused to come out to talk.  He is apparently still quoted reasonably often in the Chinese-language media but simply refuses to explain himself to his majority English-speaking electors.  It is shameful, but it is also telling.  A decent man would want to front up and tell his story. A decent party would insist on it.  A decent opposition party would repeatedly highlight any failure to do so.  I wonder what Paul Goldsmith –  seemingly an otherwise decent National MP –  makes of his office mate’s refusal to talk?

A reader who is fluent in Chinese sent me a couple of snippets on Jian Yang.

In one of the …. files released last Oct by the immigration office under OIA , Jian Yang declared he entered to Luo Yang University in 1978 and graduated in 1982 where he obtained a bachelor degree of English Study.

When I checked the background of this university in Chinese source, I found this university (Luo Yang university) wasn’t even founded until 1980 which means the university didn’t exist in 1978, the year Mr Yang declared he started his university education.

Here is a brief introduction of the Luo Yang university in Chinese in Wikipedia which I have translated into English.

Luoyang University, is It was a Tertiary institute that existed between 1980 and 2007. The school was funded in September in 1980 through World Bank education loan and Luoyang City council, and was a full-time polytechnic. In 1997, Luoyang University began the construction of a new campus at Luolong District, south bank of Luo River. In 1999, Luoyang University moved to the new campus. The old campus still has the Luoyang University Adult College and some ancillary facilities. 

Before 2006, Luoyang University is a polytechnic level institute. The school had tried to upgrade to university level several times, but not successful. In 2007 Luoyang University merged with another polytechnic Luoyang Industrial Polytechnic, and became a university level institute called Luoyang Institute of Science Technology.

The certificate that Jian YANG submitted to the immigration office seems a official document issued by the university and that has left a question: why the university would take a risk to make a statement which is apparently again the fact?

Either the certificate itself didn’t come from the university but was made up by someone else or Jian Yang was assisted by the university for a purpose to cover up his military background.

Again, in serious and decent countries these matters would be taken at least as seriously as the dodgy Czech currently (and rightly) under investigation.

I was sent a link to a debate hosted by a local Chinese-language TV station during last year’s election among ethnic Chinese candidates from four different parties.   Among them were Jian Yang, and an ethnic Chinese (Malaysian born) candidate for the Maori Party.     I was sent a translation and brief commentary on an exchange between these two (at about 1:03)

Jian Yang was challenged by Maori Party’s Chinese candidate, Wetex Wang (a Malaysian born Chinese), asked if he has done anything about introducing foreign investment to help the local economy in his 6 years sitting in parliament.

Below is a translation of Jian Yang’s answer.

Our Yili Group, built milk powder factory here. Our Mengniu Dairy, that is, Yashili International Holdings. These enterprises came to New Zealand, in fact they have all contacted with me, including our largest waste disposal factory, Waste Management, is invested by Chinese. We all contacted with (them). I went to their companies to introduce New Zealand’s policy, why New Zealand is a good place, why you should come to New Zealand.

My reader notes

(Please note that Jian Yang in the video has kept referring those Chinese companies as  “Our Yili, Our Mengniu, Our Waste Management” which sounds like he is a CCP official.  This is quite strange for me. Even if Jian Yang is an ethnic Chinese, he is a NZ politician. I would not imagine Kiwi politicians would refer those Chinese companies as Our.. Our…Our… instead, they would say Chinese Yili, Chinese Mengniu.  Apparently, Jian Yang still positions himself as a CCP representative but sitting in a foreign political circle.)

Perhaps a small thing in its own right, but put it together with his background, his ongoing close ties to the PRC Embassy, his refusal to talk to the media, his refusal ever to say anything critical of the PRC, it makes my reader’s point that there is little sign that Jian Yang –  despite serving in the New Zealand Parliament –  prioritises New Zealand interests and perspectives.      And our government seems unbothered.

Of course, there is always the alternative perspective. I noticed the China Council –  New Zealand government paid champions of and apologists for the People’s Republic of China –  tweeting a link to this article by a New Zealand living and working, and publishing, in China.   He champions the China Council and concludes

There’s no quick fix, and it will definitely take time and effort, but the sooner the world understands that China and the Chinese people are just like the rest of us, the sooner the world will reap the sweetest fruit that trade liberalization and economic globalization can grow.

Probably many Chinese people do have much the same aspirations, but the Chinese people have no freedom of expression, no freedom of religion, no ability to change their government, often not even freedom of movement, no benefit of the rule of law.   Not just like us at all.  It is the Chinese government we –  and they –  have to worry about.   There were fellow-travellers and sympathisers writing from Berlin in 1938, or from Moscow throughout the Cold War too.  But most New Zealanders  –  and then both the government and the opposition (National and Labour) – knew better.

Our leaders should –  and I hope one day will –  hang their heads in shame at what they brush over, and consciously look past, just not caring, so long as the donations and deal keep flowing.